Overview

• Tesla's new bylaw requires shareholders or groups to hold at least 3% of the company's outstanding shares—approximately 97 million shares worth $34 billion—to file derivative lawsuits.
• The bylaw, effective May 15, capitalizes on a recently enacted Texas law enabling corporations to set high ownership thresholds for such claims.
• Previously, under Delaware law, shareholders with as few as nine shares could bring derivative suits, as seen in the 2018 case challenging Elon Musk's $56 billion pay package.
• Tesla reincorporated in Texas in June 2024 after shareholder approval, following a Delaware court ruling that invalidated Musk's compensation plan due to board conflicts and procedural flaws.
• Musk has appealed the Delaware court's decision, with the outcome pending, while the new bylaw significantly limits legal recourse for most investors.